FCA tackles the insurance penalty – at last!
The Financial Conduct Authority (FCA) has announced today that it will reform home and motor insurance, focussing particularly on the current “loyalty penalty” that punishes existing loyal clients’ premiums and favours new clients.
The FCA found in 2018 that some 6 million policyholders were paying high or very high margins over and above an average premium. Had they have paid the average for their risk, they would have saved £1.2 billion!
The FCA has published a 31-page report on the insurance market and finally (two years later!) announced a consultation on the following:
- Product governance rules requiring firms to consider how they offer fair value to all insurance customers over the longer term.
- Requirements on firms to report certain data sets to the FCA so that it can check the rules are being followed.
- Making it simpler to stop automatic renewal across all general insurance products.
“The FCA is proposing that when a customer renews their home or motor insurance policy, they pay no more than they would if they were new to their provider through the same sales channel.”, says the regulator’s announcement today.
If the proposal goes ahead it is estimated that £3.7 billion would be saved by insurance customers over 10 years. Methinks the insurance companies won’t like these proposals!
Loyalty Super Complaint
The FCA’s action originates in September 2018, when the Citizen’s Advice Bureau launched a “Super Complaint” calling on the regulator to look into how consumers are being penalised for loyalty in 5 key sectors. It requested an outline from the CMA on what action would be taken to resolve the problems.
FCA Consultation on insurance prices
The FCA’s consultation is open until 21 January 2021, to be followed by analysis of feedback and a Policy Statement, with new rules due later that year. We’ve all known that these practices have been going on for years and the Super Complaint was made two years ago. It beggars belief that it will be three years from this complaint before something is done.
FCA dragging its feet
In a statement made in September 2018 the FCA said
“In the FCA’s 2018/2019 Business Plan we announced that we were looking at the pricing practices of general insurance firms. As part of that work we will launch a market study looking at how general insurance firms charge their customers for home and motor insurance. The terms of reference for this market study will be published in a few weeks’ time.”
So, why has it taken so long?
In the meantime here are the measures you can take to ensure that you are not losing your share of the 1.2 billion that insurance companies are overcharging their loyal customers!
See How to save money on insurance and beat the tactics used to make you renew a story of how to get round the company wanting to make you phone to cancel a renewal…